Mortgage-Interest Deduction May Be Scaled Back Amid ‘Fiscal Cliff’ Negotiations

Photo of a $100 billLimits on the mortgage-interest tax deduction are looking more likely after President Barack Obama said this week that tax breaks benefiting middle-class families could be at risk if taxes for the wealthiest Americans are not increased.

Few political observers expect the popular tax deduction to be eliminated, but several proposals floated in Washington in recent weeks could limit deductions on second homes, lower the current $1 million mortgage deduction cap by as much as $500,000, or cap deductions across the board.

Obama and congressional leaders are engaged in an escalating war of words as they work to hammer out a budget plan and avoid a fast-approaching “fiscal cliff” — the steep tax increases and spending cuts that would otherwise take effect in January due to legislation that mandates draconian measures if Democrats and Republicans fail to agree on ways to reduce the public debt.

The mortgage-interest deduction surfaced Monday during an hour-long Twitter town hall session with Obama.

One questioner asked, “As a homeowner, I worry deductions for homeowners are at risk. Is that the case?”

The president responded using an abbreviated style common to Twitter, which limits messages to 140 characters: “Breaks for middle class impt (important) for families & econ (economy). If top rates don’t go up, danger that middle class deductions get hit.”

Obama is pressuring Congress to raise tax rates for the wealthiest Americans. The alternative, he says, is to limit or eliminate tax deductions for the middle class.

Republicans have balked at raising tax rates and are pushing instead to trim spending and close tax loopholes.

(Photo of a $100 bill courtesy of 401(k) 2012, via Flickr.)

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